Testimony of
Thomas M. Sullivan
Chief Counsel for Advocacy
U.S. Small Business Administration
U.S. House of Representatives
Committee on Government Reform
Subcommittee on Regulatory Affairs
September 28, 2005, 10:00 A.M.
Room 2154, Rayburn House Office Building
Washington, D.C.
"The Impact of Regulation on U.S. Manufacturing:
Spotlight on the Environmental Protection Agency"
Chairman Miller and Members of the Subcommittee, good
morning and thank you for giving me the opportunity to
appear before you today. My name is Thomas M. Sullivan and
I am the Chief Counsel for Advocacy at the U.S. Small
Business Administration (SBA). Congress established the
Office of Advocacy under Pub. L. No. 94-305 to advocate the
views of small business before Federal agencies and
Congress. Because Advocacy is an independent entity within
the U.S. Small Business Administration (SBA), the views
expressed by Advocacy do not necessarily reflect the
position of the Administration or the SBA.
In 2004, the Office of Management and Budget (OMB) and
Federal agencies undertook a process designed to reduce the
regulatory burden on U.S. manufacturers through 76 targeted
regulatory reforms, including several reforms recommended by
the Office of Advocacy (see Attachment A for a list of the
proposed reforms). More than half of these reforms involved
rules issued by the U.S. Environmental Protection Agency
(EPA).(1)
The Subcommittee has requested Advocacy's view of the
overall progress made by the EPA in reforming these
regulations. Based on our experience in working with EPA to
implement three of the specific reforms we recommended, we
believe EPA is making good progress in some areas, but I
would be remiss if I did not point out the frustration of
small business at the length of time associated with
meaningful relief. If all of the recommended reforms are
implemented by EPA, they will yield reduced regulatory
burden without sacrificing environmental protection.
How Important Is the Relationship Between Small Business and
Manufacturing?
Small businesses are important to U.S. manufacturing.
Economic data from 2002 indicate that nearly 99 percent
(98.6%) of all manufacturing firms are small businesses.(2)
Put another way, these small businesses employ over 42% of
the more than 14 million Americans who are manufacturing
employees.(3) Additionally, small firms tend to innovate
more than large ones do, producing 13 to 14 times more
patents per employee than larger firms do.(4) Small firm
patents are more likely to be driven by leading edge
technology than large firm patents.(5) Finally, small
manufacturing firms are more likely than large companies to
produce specialty goods and custom-demand items. For these
reasons, small business manufacturing is very important to
the U.S. economy.
How Important Are the Costs of Environmental Regulation to
Small Manufacturers?
The 2005 Advocacy-funded study by W. Mark Crain, The
Impact of Regulatory Costs on Small Firms,(6) found that, in
general, small businesses are disproportionately impacted by
the total Federal regulatory burden. This overall
regulatory burden was estimated by Crain to exceed $1.1
trillion in 2004. For manufacturing firms employing fewer
than 20 employees, the annual regulatory burden in 2004 was
estimated to be $21,919 per employee - nearly 2« times
greater than the $8,748 burden estimated for firms with 500
or more employees.(7) Looking specifically at environmental
costs, the difference between small and large manufacturing
firms is even more dramatic. Small manufacturing firms
spend 4« times more per employee for environmental
compliance than large businesses do. Environmental
regulations comprise the largest share of small
manufacturers' regulatory burden, adding up to 72% of their
total regulatory costs.(8) This large discrepancy between
large and small manufacturers for environmental costs is
largely attributable to the fact that many environmental
rules require significant fixed capital investments (e.g.,
pollution control equipment) and other costs that small
firms cannot spread over high-volume operations in the way
that large firms can.
The 2005 Crain study is the most timely and
comprehensive measure of the total cost of regulations on
the U.S. economy, reflecting the state of the economy in
2004 and covering virtually every category of regulations
impacting small business. The report uses data gathered
from numerous sources, including the Office of Management
and Budget (OMB), the Organization for Economic Cooperation
and Development (OECD), the Council of Economic Advisors,
the Census Bureau, and various resource organizations.
The 2005 Crain report improves upon the earlier Crain-
Hopkins study(9) in several ways. First, the report
estimates the cost of economic regulation with a new
methodology that accounts more accurately for current
economic conditions. Second, the report contains a more in-
depth discussion of the methodology and data underlying the
cost estimates than its predecessor did. Finally, the Crain
report was updated to conform to the Office of Management
and Budget's 2004 Final Information Quality Guidelines.(10)
Accordingly, the 2005 Crain study has been peer-reviewed by
external experts in the field of regulatory analysis.(11)
The Crain study's findings are important because they
underscore the significance of small business to
manufacturing and the overall American economy. Despite the
disproportionate regulatory burdens borne by small firms,
the small business sector is the primary engine of job
creation, growth and innovation.(12)
What Progress Has the EPA Made In Reducing Regulatory
Burdens On Small Manufacturers?
At present, EPA is pursuing some 42 suggestions for
reform of environmental rules affecting manufacturers (see
Attachment A). Advocacy has worked particularly closely
with EPA on three of these reforms: "Reporting and
Paperwork Burden in the Toxic Release Inventory Program,"
"Spill Prevention Control and Countermeasure (SPCC) Rule,"
and "Lead Reporting Burdens under the Toxic Release
Inventory Program." We believe our experience with these
three EPA reforms illustrates the overall situation with
EPA's manufacturing reform efforts.
ú Reporting and Paperwork Burden in the Toxic Release
Inventory Program
On September 21, 2005, EPA proposed revisions to the
Toxic Release Inventory (TRI) program to allow additional
TRI reporters to use the "short" Form A instead of the
longer Form R.(13) Advocacy originally became involved in
this issue in August 1991, when we submitted a rulemaking
petition to EPA to reduce unnecessary TRI reporting burdens
on small business. We got involved because the cost for
small businesses to calculate often tiny amounts of
chemicals in their raw materials/products and prepare
lengthy Form R reports is often substantial, yet produces
very little real environmental benefit, since these
chemicals are not actually released into the environment.
Accordingly, based on comments from Advocacy and other small
business representatives, EPA developed the original Form A
in 1994 as a less burdensome way to report insignificant
annual chemical management activities. Unfortunately, many
of the businesses that would benefit the most from Form A
were later declared ineligible by EPA to use the short form.
For example, Form A was not available to facilities that
used "persistent, bioaccumulative, and toxic" materials
(PBTs) in their operations, or those that used more than 500
pounds of a non-PBT material in a year.
EPA's proposed revision to the TRI rule addresses this
problem. The proposal would allow Form A to be used for the
first time by businesses that handle PBTs, but that release
no PBTs to the environment. The proposal also allows
facilities that use 5,000 pounds or less of non-PBT
materials in a year to use Form A. In total, it is
estimated that the proposal would provide a measure of
regulatory relief for about 33% of all TRI reporters, and is
anticipated to save about 165,000 hours of filing burden
each year. At the same time, the proposal ensures that the
toxic materials management activities of concern to the
public will continue to be reported through Form R.(14) If
implemented as proposed, EPA's reform would provide
paperwork relief to some 8,000 businesses, most of whom are
small. This is an example of a regulatory reform that
brings meaningful burden reduction to small business, while
maintaining the same degree of community information and
environmental protection.
ú Spill Prevention Control and Countermeasure (SPCC) Rule
Advocacy has worked with EPA for several years to
implement improvements to
the Spill Prevention, Control and Countermeasure (SPCC)
program, which protects our waters against oil spills from
industrial facilities. At present, because of the
complexity and cost of the current SPCC program, Advocacy
believes that many small businesses are unable to comply
fully with the new requirements adopted in 2002. For
example, facilities are currently required to prepare spill
prevention plans that are certified by a professional
engineer. This is a costly and unnecessary expense for
firms with a small-capacity storage tank. Small volume
tanks do not generally pose the same environmental risks
that larger volume tanks do.(15)
Advocacy suggested reforms to the SPCC requirements in
June 2004, including allowing facilities with an oil storage
capacity below a certain threshold to use streamlined, less
expensive requirements. We believe that overall SPCC
compliance will improve with a simpler, less expensive
program that is tailored to small facilities. EPA's
objective of environmental protection will be met, and in
some cases enhanced, while many small manufacturers will not
be required to incur needless cost. On September 17, 2004,
EPA issued a Notice of Data Availability requesting public
comments on Advocacy's suggested approach for facilities
that handle oil below a certain threshold amount.(16) We
anticipate an EPA proposal to provide relief to small
facilities and other regulatory improvements in the near
future, with a final rule scheduled for February 2006.
Again, this reform would bring substantial burden relief to
small businesses while maintaining the current high level of
environmental protection.
ú Lead Reporting Burdens Under the Toxic Release
Inventory Program
As much as the TRI reporting and paperwork burden
reform effort appears likely to be a success story for EPA,
parallel efforts to reform EPA's 2001 TRI lead reporting
rule have not shown as much promise. EPA imposed
substantial new TRI paperwork burdens on small business in
early 2001, when it lowered the TRI reporting threshold for
lead to 100 pounds from the previous 10,000/25,000 pound
threshold.(17) As a result of EPA's action, over four times
as many companies had to file lead TRI reports.(18) The
first-time recordkeeping burden of filing these reports was
estimated to exceed 100 hours per firm, and Advocacy
estimates that as much as 500,000 staff hours were required
to create these reports in 2001.(19) The data from the 2001
reporting revealed that the majority of the filers had zero
or near zero onsite releases of lead. Specifically, 38% of
all reports documented zero releases to the environment,
while an additional 25% of all reports were for 10 pounds or
less released to the environment. Thus, some 63% of all TRI
reports for lead and lead compounds likely would have no
discernable effect on the environment. Moreover, while the
burden of complying with TRI reporting for lead falls most
heavily on manufacturing firms - comprising 84% of all such
reports in 2001 - most manufacturers contribute little or no
lead to the environment.(20)
It is worth noting that small businesses informed EPA
that the lowered lead reporting threshold would impose
significant new reporting burdens with little or no
corresponding benefit to the environment. The Office of
Advocacy also argued strongly that EPA should convene a
small business review panel under the Small Business
Regulatory Enforcement Fairness Act of 1996 (SBREFA).(21)
No such review panel was convened. Despite assurances
beginning as early as 2001 that the TRI lead reporting rule
would be reformed to address unnecessary filing requirements
on small businesses, these small businesses are frustrated
that seemingly little has been done to implement reform.(22)
Advocacy is Committed to Achieving Regulatory Reforms
The Office of Advocacy has worked closely with EPA and
other entities to implement needed regulatory reforms.
Advocacy activities have included holding public outreach
meetings to receive suggestions on needed reforms, working
with small business representatives to hear their views, and
helping OMB prioritize the regulatory reforms of particular
concern to small entities. Advocacy is committed to the
regulatory reform process because the process can really
only work if the interests of small business are included.
Congress realized the importance of small business when the
Regulatory Flexibility Act (RFA) and the Small Business
Regulatory Enforcement Fairness Act (SBREFA)(23) were
enacted into law. When planned rules are evaluated by
Advocacy under the RFA and SBREFA, we look for ways to
reduce small business burdens without compromising the
regulatory objectives intended by the regulating agency. We
believe that EPA's regulatory reform efforts can achieve the
same result, which will be extremely beneficial for small
manufacturing firms.
Thank you for allowing me to present these views. I
would be happy to answer any questions.
ATTACHMENT A
Summary of 76 Regulatory Reform Nominations
(Office of Advocacy Reform Nominees Indicated in Bold)
OMB Rule Nominated for Reform Agency
No(s
).
4 Coastal Zone Management Act National Oceanic
Federal Consistency and Atmospheric
Admin.
6 NAFTA Certificates of Origin Dept. of Homeland
Security
7 Maritime Security Dept. of Homeland
Security
12 Motor Vehicle Brakes Dept. of
Transportation/
FMCSA
14 Hours of Service Dept. of
Transportation/
FMCSA
16 Lighting and Reflective Devices Dept. of
Transportation/
NHTSA
18 Occupant Ejection Safety Standard Dept. of
Transportation/
NHTSA
22 Vehicle Compatibility Standard Dept. of
Transportation/
NHTSA
26 Employer Information Report (EEO- Equal Employment
1) Opportunity
Commission
28 "Coke Production" Emission Factors EPA
(AP-42)
30 Document AP-42: Science and Site- EPA
Specific Conditions
33 Clean Up Standards for EPA
Polychlorinated Biphenyls
34 Common Company ID Number in EPA EPA
Databases
35 Enforcement and Compliance History EPA
Online (ECHO) Website
36 Electronic Formats for Agency EPA
Forms
38 Expand Comparable Fuels Exclusion EPA
under RCRA
39 Export Notification Requirements EPA
42 Hazardous Waste Rules Should Be EPA
Amended to Encourage Recycling
43 Lead Reporting Burdens Under the EPA
Toxic Release Inventory Program
44 Maximum Achievable Control EPA
Technology Standard for Chromium
45 Polychlorinated Biphenyl EPA
Remediation Wastes
46 Permit Use of New Technology to EPA
Monitor Leaks of Volatile Air
Pollutants
47 Water Pretreatment Streamlining EPA
Rule
48 Provide More Flexibility In EPA
Managing F006 Wastewater Sludge to
Encourage Recycling
51 Remove Disincentives to Recycling EPA
Spent Hydrotreating and
Hydrorefining Catalysts
52 Reporting and Paperwork Burden in EPA
the Toxic Release Inventory
Program
54,5 Spill Prevention Control and EPA
5 Countermeasure (SPCC) Rule
56,5
7
58
59 Water Permit Rules EPA
61 Annual Reporting of Pesticide EPA
Information
68 Cooling Water Intake Structures, EPA
Phase III
75 Electronic Filing by Manufacturing EPA
Firms
83 Leak-Detection and Repair Programs EPA
86 Method of Detection Limit/Minimum EPA
Level Procedure under the Clean
Water Act
87 Operating Permits under the Clean EPA
Air Act
88 Potential to Emit Test EPA
90 Prohibit Use of Mercury in Auto EPA
Manufacturing
92 Reduce Inspection Frequency from EPA
Weekly to Monthly for Selected
RCRA Facilities
97 Reportable Quantity Threshold for EPA
NOx at Combustion Sources
101 Sulfur and Nitrogen Monitoring at EPA
Gas Turbines
103 Program for Developing and EPA
Validating Analytic Methods
108 Deferral of Duplicative Federal EPA
Permitting
110 Superfund Amendments and EPA
Reauthorization Act
112 Vapor Recovery at Gasoline EPA
Stations
116 Publicly Owned Treatment Works EPA
removal credits
117 Categorical Wastewater Sampling EPA
and Testing
118 Definition of Volatile Organic EPA
Compound
119 Thermal Treatment of Hazardous EPA
Waste Guidance
121 "Do Not Fax" Rule Federal
Communications
Commission
122 Broadband Federal
Communications
Commission
125 Health Insurance Portability and Department of
Accountability Act of 1996 Health and Human
Services
134- Reform of Family and Medical Leave Department of
137 Act (FMLA) Labor, Employment
141- Standards
144 Administration
139 Reform of FMLA Dept. of Labor/ESA
145 Permanent Labor Certification Dept. of Labor
151 Annual Training for Separate Dept. of
Standards Labor/OSHA
152 Coke Oven Emissions Dept. of
Labor/OSHA
153 Flammable Liquids Dept. of
Labor/OSHA
155 Hazard Communication Training Dept. of
Labor/OSHA
156 Hazard Communication/Material Dept. of
Safety Data Sheets (MSDS) Labor/OSHA
157 Hexavalent Chromium Dept. of
Labor/OSHA
159 Sling Standard Dept. of
Labor/OSHA
160 Guardrails Around Stacks of Steel Dept. of
Labor/OSHA
169 Walking and Working Surfaces Dept. of
Labor/OSHA
175 Duty Drawback Dept. of the
Treasury/Dept. of
Homeland Security
178 Election to Expense Certain Dept. of the
Depreciable Business Assets Treasury/ Internal
Revenue Service
188 Ready to Eat Meat Establishments Dept. of
to Control for Listeria Agriculture/Food
Monocytogenes Safety and
Inspection Service
ENDNOTES
1. The 2004 initiative to improve manufacturing rules is
the most recent in a series of regulatory reform efforts
initiated by this Administration since 2001. OMB called for
public nominations of rule reforms in the May 2001 and March
2002 Draft Reports to Congress. OMB received 71 and 316
nominations from the public, respectively. OMB did not
issue a public call for nominations in 2003.
2. See Office of Advocacy economic statistics, available at
http://www.sba.gov/advo/stats/us_tot_mi_n.pdf.
3. Id.
4. Small Serial Innovators: The Small Firm Contribution to
Technical Change (February 2003) available at
http://www.sba.gov/advo/research/rs225tot.pdf.
5. Id.
6. The Impact of Regulatory Costs on Small Firms (September
2005) available at
http://www.sba.gov/advo/research/rs264tot.pdf.
7. Id. at page 55, Table 18.
8. Environmental regulations account for about 40% of large
manufacturers' (500 or more employees) regulatory costs.
The distribution of environmental compliance costs across
industries and firm sizes in the Crain study is derived
directly from firm-level data from the Pollution Abatement
Control Expenditures (PACE) survey from 1994, the last year
for which data were available when the Crain study was
written.
9. W. Mark Crain and Thomas D. Hopkins, The Impact of
Regulatory Costs on Small Firms (October 2001) available at
http://www.sba.gov/advo/research/rs207tot.pdf.
10. See Office of Management and Budget, Final Information
Quality Guidelines (October 1, 2002), available at
http://whitehouse.gov/omb/inforeg/iqg-Oct2002.pdf.
11. Peer review was performed under the Office of Management
and Budget's directive for peer review, available at
http://www.whitehouse.gov/omb/fedreg/2005/011405_peer.pdf.
12. See Office of Advocacy, Small Business Frequently Asked
Questions available at
http://www.sba.gov/advo/stats/sbfaq.pdf and Small Serial
Innovators: The Small Firm Contribution to Technical Change
(February 2003) available at
http://www.sba.gov/advo/research/rs225tot.pdf.
13. The formal proposal is expected to appear in the Federal
Register within a few days.
14. EPA estimates that over 99% of toxic materials handling
at facilities will be reported through Form Rs.
15. According to a 1995 EPA survey, facilities with total
storage capacities of 5,000 gallons or less account for an
estimated 48 percent of all facilities, but only 0.2 percent
of oil discharged. In its own analysis of the 1995 survey,
EPA noted that "facilities with larger storage capacity are
likely to have a greater number of oil spills, larger
volumes of oil spilled, and greater cleanup costs." U.S.
EPA, Analysis of the Relationship Between Facility
Characteristics and Oil Spill Risk (1996).
16. See 69 Fed. Reg. 56,182 (September 17, 2004).
17. See 66 Fed. Reg. 4,500 (January 17, 2001).
18. 8,560 lead and lead compound TRI reports were filed in
2001, 2,025 were filed in 2000.
19, 66 Fed. Reg. 4,538 (January 17, 2001).
20. In 2001, the primary metals industry accounted for 83%
of all manufacturing releases of lead.
21. Letter from Jere Glover, Chief Counsel for Advocacy,
Office of Advocacy, to John Spotila, Administrator, Office
of Information and Regulatory Affairs, Office of Management
and Budget (October 5, 2000), available at
http://www.sba.gov/advo/laws/comments/omb00_1005.html.
22. EPA's scientific review of the metals framework which
allows lead to be categorized as a PBT chemical was
scheduled to be completed more than two years ago. The
review has still not been completed.
23. Codified at 5 U.S.C. 601-612